22 November 2021

Unfair trading practices in B2B relationships - agri-food sector in the spotlight

Protecting the weaker party against unfair trading practices has long been the exclusive domain of consumer law. In business-to-business (B2B) relationships, the prohibition of abuse of dominance is relevant but has led to few cases, as exploitative abuse has not been an enforcement priority and the prerequisite of dominance is hard to prove.

In recent years, unfairness has become part of the public debate on how companies should behave. There is an increasing tendency to legislate against business practices that are considered unfair, making these practices illegal. Small and medium-sized enterprises (SME) with business relationships with larger companies are especially being protected. Various regimes regulate the commercial behaviour of larger companies and general EU-wide prohibitions apply, including against abuse of a dominant position on a specific market. The Late Payments Directive is another example of B2B regulation.

Some member states have extended the rules by prohibiting abuse of economic dependency. In addition, specific legislation that is directed at specific sectors may apply, such as the B2B Platform Regulation targeting unfair practices by online platforms. In this article, we pay special attention to the agri-food sector, and the implementation of the EU directive on unfair trading practices in B2B relationships in this sector.

Abuse of dominance or economic dependency

The prohibition of abusing a dominant position in a specific market is a general provision of competition law. It mainly serves to protect competition (and, as such, the end consumer), and not the weaker party directly, in commercial B2B relationships. Nevertheless, the prohibition qualifies unfair practices as an abuse, and this may include a dominant undertaking's abuse of purchase power. The Court of Justice of the European Union confirmed this principle in the CICCE case regarding unfair (low) purchase prices, although it rejected the specific claim. However, as consumer welfare is often unharmed in cases of purchase power abuse, enforcement is difficult. Companies can argue that consumer welfare increases when an undertaking with purchase power negotiates a lower purchase price that is passed on to the downstream market where that dominant undertaking sells its products or services.

To foster the bargaining position of SMEs towards larger companies, some EU member states have unilaterally adopted a prohibition against the abuse of economic dependency. If an SME is a customer or supplier of a larger company and economically dependent on that company, unfair commercial behaviour – such as requiring unjustified benefits from suppliers – is prohibited. Although this prohibition has hardly been enforced in the past, enforcement has started to pick up. For example, in Germany, supermarket chain EDEKA unilaterally required a "wedding" rebate from its suppliers when it took over a competing supermarket. Similarly, the large furniture retailer XXXLutz unilaterally demanded an "anniversary" gift from its suppliers for its 75th birthday by requiring a 7.5% rebate from the SMEs which crafted the furniture. The cases against both companies were dropped after the companies agreed to amend these practices. In France, Apple was fined for insufficiently supplying its independent retailers so that they could not meet their orders. In Lithuania, the prohibition against abuse of economic dependence is sector specific and applies only to supermarkets and their suppliers. An example is supermarket UAB Palink pressuring its suppliers to spend the planned sales promotion budget by the end of the year, although there were no remaining promotions. The Polish competition authority has prioritised payment gridlocks in its enforcement, resulting in its first fines issued to supermarkets this year. Late payments are also considered unfair in Poland and are targeted by specific legislation.

B2B unfair trading practices in the agri-food sector

This brings us to unfair trading practices in the agri-food sector. By 1 November 2021, national legislation implementing directive 2019/633 had to be in force in all EU member states. Accordingly, the Unfair Commercial Practices in the Agriculture and Food Supply Chain Act came into effect in the Netherlands on that date.

The directive targets the unequal balance of power between powerful buyers and relatively weaker sellers in the agricultural and food supply chain. Buyers with strong bargaining powers are usually large retailers, consortiums and purchasing alliances that deal with farmers, growers, fishermen and other small and medium-sized suppliers. To control excessive buying power, the directive introduces black and grey lists of unfair trading practices.

Blacklisted practices are unlawful and include, for example, late payments, order cancellations on short notice, unilateral changes of terms by the buyer, payment obligations for the supplier which are unrelated to the contract, and refusals to give written confirmation of the contract. An example of a practice on the grey list is imposing additional charges on a supplier that are related to the buyer's promotions and advertisements. Grey-listed practices are unlawful unless they have been agreed between the parties in clear and unambiguous terms. Moreover, as the directive only aims at minimum harmonisation, member states may add to the black and grey lists other practices which they consider unfair.

To fall within the scope of these rules, a twofold test must be met. First, the products concerned must be agricultural and food products, including perishable goods. Second, trade relations between small or medium-sized suppliers and large-sized buyers are covered only based on their respective annual turnover. There are five different combinations of turnover thresholds pairing an SME supplier to a large buyer. These categories of turnover combinations range from an annual turnover of less than EUR 2 million for a supplier delivering goods to buyers with an annual turnover of more than EUR 2 million (lowest bracket), to a supplier with an annual turnover between EUR 150 and 350 million delivering to a buyer with an annual turnover of more than EUR 350 million.

As regards enforcement, a supplier can rely on the black and grey lists in any litigation over its contract with a seller. A supplier may also complain to a public authority in its home member state or to the authority in the buyer's home state. In many cases, that will be the competition authority, such as the ACM in the Netherlands. The directive further gives member states the option of introducing alternative dispute settlement. The Dutch legislature has chosen to use this option, and has a special appointed a dedicated complaints board as the arbitration forum.

Existing agreements

The directive temporarily excludes supply agreements concluded before the implementing national legislation is published. It provides a grace period of 12 months after publication date. That period can therefore differ per member state. In the Netherlands, the implementing act was published on 15 April 2021, so the grace period ends on 15 April 2022. After that, supply agreements entered into before 15 April 2021 must comply with the new law. Supply agreements entered into after 15 April 2021 must comply immediately.